Clause 6
Finance Bill
9:15 am
Mark Field (Cities of London and Westminster, Conservative)
The right hon. Gentleman makes a well-rehearsed case. Elements of the recession in the early 1990s were worse than in other parts of the world. It was a global recession as well, albeit with a less globalised economy. China and India, for example, were barely coming out of decades or centuries of relatively quiet economic activity. In the past 15 years matters have been transformed. Our argument has been—the proof is in the pudding according to the International Monetary Fund and other independent global forecasters—that in many ways we have a more serious situation simply because we racked up huge debts during a time of plenty and were not putting reserves aside. I accept that we are in a very different stage.
I know that the Financial Secretary shares with me an interest in international affairs. It is very evident that we are still at a relatively early stage of this recession. Only six or seven months ago there was a sense that we were going to be appallingly badly hit as a result of our reliance on financial services. But one effect of the rapid depreciation of the pound has been that we have perhaps got off slightly more lightly than other countries, such as Germany, which only six or seven months ago were seen to have a very stable financial situation with no Government debt. But as the trade situation globally has imploded, such countries’ massive reliance on international trade has made them more vulnerable to what I would call the second stage of this downturn.
Although tactics have been involved, I suspect that my party has been slightly more soft-pedal on this issue than my hon. Friends the Members for Wellingborough and for Northampton, South would have liked. However, there is a sense that we are all in this together. It will take time for us to get out of the downturn and its effects. I will not make any suggestions about how I think that the public finances will be corrected, but clearly, a range of areas of public spending will have to be seriously considered. Nobody denies that. I know that the retort from the Labour Benches will be, “Which hospitals and schools are you going to cut?” However, I suspect that that will land on deaf ears in the electorate.
Even the Government’s own figures, coupled with their ambitious growth figures, leave little doubt that public spending rounds for some years to come will be less generous than they have been over recent years. If there is to be a slowdown or even cuts in public expenditure, it will be the less well-off in our communities who suffer the most. There must, therefore, be a sense that the burden of the overall downturn has been applied across the board. For that reason, at least in the immediate term, I suspect that it is unlikely that a Conservative Government would be in a position to reduce the 50 per cent. tax band, although we would hope to do so as quickly as possible, as we need to encourage entrepreneurs.
My last point is about the importance of the City of London. As a representative of the City, I hope that we can get it back to a strongly competitive state. As I mentioned last Tuesday, it is important to recognise that the City is not made up only of big banks, but provides a range of other financial services. Many of those have thrived in recent months and continue to do so because they have international competitive advantages compared with other parts of the world.
Insurance is a tremendously successful sector, and there are many lessons to be learned from the appalling disasters that beset Lloyd’s only 20 years ago. The setting up of Equitas was an important model for the ways in which we can get out of many of the problems with our banking system. Lloyd’s now goes from strength to strength, which is a great joy to us all.
However, we are clearly reliant—perhaps in all honesty, slightly over-reliant—on the financial services industry. A Faustian bargain was made with our European partners when the big bang took place in 1986. London was, is, and thankfully for some years to come will remain, the great European financial centre. That Faustian bargain probably meant that more industry went out to Germany, agriculture and other advantages went out to France, although we had the financial services.
My instinct is that financial services will remain important. Even during these recessionary times, 30 or 40 million people a year in India and China are joining the middle classes. They are instinctively savers and investors for the future, and will require financial services products in order to save in an effective way. In the immediate and the medium term, the overall cake for financial services will be smaller, and we must do our best to ensure that London’s slice of it is at least maintained if not enlarged. Nevertheless, this issue illustrates the fact that we need to have a slightly more balanced economy. That is not to say that we do not have strength in other areas—we have tremendous success in a range of creative industries such as computer games, where we are global leaders making a terrific amount of money.
Let us be honest—we still have a very successful manufacturing sector. It is smaller, but it is high resolution and high value-added. In this world where we expect high wages in the economy, we should thrive on that and try to ensure that we get the best out of our research and development. That might be in luxury products—we are going to get big markets from China and India in the future, with 2.5 billion people there.